Chile has plans to apply a 19% VAT on certain foreign-supplied digital services. The relevant bill was approved by Chile’s Senate in February and will become effective from June 1, 2020.
Affected foreign digital service companies now have VAT registration and collection obligations for their sales to Chile-based customers.
There is likely to be a simplified registration system for foreign digital service suppliers to use to fulfil their Chile VAT obligations. It seems unlikely that there will be a threshold to registration meaning that Chile VAT obligations will kick in from the foreign suppliers’ first sale to a Chile-based customer.
Chile VAT and affected digital services
Affected digital services would include (please note, this list is not exhaustive):
- The supply or delivery of digital entertainment content, such as videos, music, games or similar, through downloads, streaming or other technology, including books, texts, magazines and newspapers;
- Making available software, storage, platforms or technological infrastructure; and,
- Advertising, regardless of the support or media through which it is materialized, delivered or performed.
- Intermediation of services rendered in Chile, of any nature, or sales performed in Chile or abroad (if the latter results in an import);
The end customer’s location in Chile will be determined if two of the following four pieces of evidence match:
- The Internet Protocol (IP) address of the device used is in Chile
- Customer’s payment card is issued or registered in Chile
- Customer’s billing address is in Chile
- Customer’s mobile phone subscriber identity module (SIM) code used in the transaction is Chilean.
Background to Chile’s VAT rule change
Chile has been reviewing its legislation relating to cross-border digital sales for some time. Back in June 2018, Chile’s then Finance Minister Felipe Larraín Bascuñán revealed his government's plans. “We are looking at other ways to apply tax, perhaps charge a transaction fee,” Larraín Bascuñán was quoted by Reuters. “Initial estimates suggest that collecting taxes from the digital economy and digital commerce could bring in several hundred million dollars.”
In August 2019, Chile's lower house of Congress (the Chamber of Deputies) set in train a major reform of the country's tax system. Included was a tax (of 19% VAT) on digital services rendered in Chile by non-residents.
A previous estimate from the Economic Commission for Latin America and the Caribbean (ECLAC) stated that the rule change could raise USD$40 million annually for the Chilean government.